FAR PPE - Revaluation PDF

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INTERMEDIATE ACCOUNTING & REPORTING FAR.0108-Property, Plant and Equipment – Revaluation Model LECTURE NOTES The Revaluation Model • The asset is carried at a revalued amount, being its fair value at the date to the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. • If an item is revalued, the entire class of assets to which that asset belongs should be revalued. How to determine fair value? • Land and Building- usually determined from market- based evidence by appraisal that is normally undertaken by professionally qualified valuers. • Items of plant and equipment- usually determined by appraisal. • If there is mo market-based evidence of fair value because of the specialized nature of the item of PPE and the item is rarely sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a depreciated replacement cost approach. How often assets should be revalued • Revaluations shall made the sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. • The frequency of revaluation depends upon the changes in fair values of the items of PPE being revalued. • When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. • Some items of PPE experience significant and volatile changes in fair value, thus necessitating annual revaluation. • Such frequent revaluations are unnecessary for items of PPE with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three years. Accounting for Revaluation Increase Not previously impaired • Recognized in OCI and accumulated in equity under the heading of revaluation surplus. Previously impaired: • Reversal of impairment loss recognized in P/L • Excess recognized in OCI Accounting for Revaluation Decrease Not previously revalued: • Recognized in P/L as revaluation loss Previously revalued: • Recognized in OCI to the extent of any credit balance existing in the revaluation surplus in respect of that asset • Excess recognized in P/L

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FAR.0108

INTERMEDIATE ACCOUNTING 1

Realized Revaluation Surplus • Maybe transferred directly to retained earnings, or • It may be left in equity under the heading revaluation surplus. • The transfer to retained earnings dhould not be made through profit or loss - done – REVIEW QUESTIONS REVIEW QUESTION: MULTIPLE CHOICE PROBLEMS Use the following information for the next two question. Tyke Corporation has the following information on January 1, 2016 relating to its land and building. Land Building Accumulated depreciation

P20,000,000 450,000,000 75,000,000

There were no additions or disposals during 2016, Depreciation is computed using straight-line method over 15 years for building. On June 30, 2016, the land and building were revalued as follows: Replacement Depreciated Cost replacement cost Land P35,000,000 P35,000,000 Building 600,000,000 480,000 1. The depreciation expense for the year 2016 is a. P35 million b. P40 million c. P30 million

d. P32 million

2. The revaluation surplus as of December 31, 2016 is a. P135 million b. P125 million c. P130 million

d. P127 million

Use the following information for next two questions. Tycoon Corporation acquired a building on January 1, 2012 at a cost of P50,000,000.The building has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2016 and the revaluation revealed replacement cost P80,000,000, residual value of P2,000,000 and revised total life of 12 years. 3. The carrying amount of building as of December 31, 2016 is a. P28,250,000 b. P42,700,000 c. P48,800,000

d. P42,950,000

4. The revaluation surplus as December 31, 2016 is a. P14.0 million b. P15.4 million c. P14.7 million

d. P16.8 million

Use the following information for the next three questions. On December 31, 2015, the statement of financial position of Twitter Corporation showed the following property and equipment after charging depreciation:

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FAR 711...